Hunan Jingfeng Pharmaceutical Co.,Ltd.'s (SZSE:000908) 26% Dip In Price Shows Sentiment Is Matching Revenues

To the annoyance of some shareholders, Hunan Jingfeng Pharmaceutical Co.,Ltd. (SZSE:000908) shares are down a considerable 26% in the last month, which continues a horrid run for the company. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 36% share price drop.

Since its price has dipped substantially, Hunan Jingfeng PharmaceuticalLtd may be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 2.4x, since almost half of all companies in the Pharmaceuticals industry in China have P/S ratios greater than 3.2x and even P/S higher than 6x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Hunan Jingfeng PharmaceuticalLtd

What Does Hunan Jingfeng PharmaceuticalLtd's P/S Mean For Shareholders?

For example, consider that Hunan Jingfeng PharmaceuticalLtd's financial performance has been poor lately as its revenue has been in decline. One possibility is that the P/S is low because investors think the company won't do enough to avoid underperforming the broader industry in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Although there are no analyst estimates available for Hunan Jingfeng PharmaceuticalLtd, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

The only time you'd be truly comfortable seeing a P/S as low as Hunan Jingfeng PharmaceuticalLtd's is when the company's growth is on track to lag the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 9.3%. This means it has also seen a slide in revenue over the longer-term as revenue is down 37% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 17% shows it's an unpleasant look.

With this in mind, we understand why Hunan Jingfeng PharmaceuticalLtd's P/S is lower than most of its industry peers. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

The Key Takeaway

The southerly movements of Hunan Jingfeng PharmaceuticalLtd's shares means its P/S is now sitting at a pretty low level. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of Hunan Jingfeng PharmaceuticalLtd confirms that the company's shrinking revenue over the past medium-term is a key factor in its low price-to-sales ratio, given the industry is projected to grow. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Before you settle on your opinion, we've discovered 2 warning signs for Hunan Jingfeng PharmaceuticalLtd that you should be aware of.

If these risks are making you reconsider your opinion on Hunan Jingfeng PharmaceuticalLtd, explore our interactive list of high quality stocks to get an idea of what else is out there.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.